EMPLOYMENT, DEMOGRAPHIC CHANGE AND WELL-BEING AVOIDING POVERTY AMONG THE ELDERLY IN AGING POPULATIONS John Giles Development Research Group The World Bank November 17, 2014
Population Aging and the Policy Research Agenda • The challenges posed by population aging span research areas in macro, micro, international, public sector, health and labor economics. • The arc of my work is related to micro topics in labor, health and public sector economics • Influence of health status and vulnerability of the elderly on the migration decisions of children (Giles and Mu, 2007). • Consequences of differences in “retirement systems” across urban and rural, and formal and informal workers (e.g. Giles, Wang and Zhao, 2010; Cai , Giles, O’Keefe and Wang, 2012; Giles et al, 2012). • Interaction between population aging and rural to urban migration. • Ongoing work involving long-term collaborations, with EAP and the SPL-GP in the Bank, and with a growing family of international researchers working on HRS-type surveys.
Opposing Motivations for Pension “Reform” in Middle and Low Income Countries • Reduce Vulnerability to Poverty and Promote Shared Prosperity • Two retirement systems: • Formal - Civil servants and formal sector workers: Pension • Informal - Informal sector, small scale enterprises, agriculture: Savings and family support • Addresses Stresses Created by Populations Aging • Aging of populations implies that burdens could rise (both fiscal burdens for formal, and strain on families for informal). • Migration of young adults may lead to lack of support for rural elderly. • Solutions? • Reduce risk of poverty in old age among “informal” sector workers. • Raise the “retirement age” in formal sector? Or reduce disincentives to later retirement. Facilitate “gradual retirement ”
Motivations • Income Poverty Among Elderly is Still Common in EAP, and is Dominated by Rural Poverty.
Across Many of the Countries in EAP , Considerable Income Poverty Rates Among Rural Elderly Income Poverty Head Count, 2011 - 2012 Note: Poverty based on EAP Standardized Household, CHNS, SES and VHLSS is defined as per capita daily income (2005 PPP $) less than $1.25 /day. Source: Giles and Huang (2014). Background Paper for the EAP Aging Report (2015).
Motivations • Income Poverty Among Elderly is Still Common in EAP, and is Dominated by Rural Poverty • Will introducing “social pensions” reduce poverty without crowding out private support and distorting the labor supply decision? • What is the case for a pension covering the informal sector? (Part 1) • For Some, Well-Being in Old Age May Require Continued Employment • Concerns Over Too Much “Early Retirement” (Part II) • With population aging, one may worry about rising support ratios due to demographic change and exacerbated by earlier retirement. • Understand factors contributing to earlier retirement in order to facilitate longer working lives (skills, policy, vs institutions)
Private Transfers and Poverty • In much of East Asia, private (financial and in-kind) transfers and co-residence with adult children reduce vulnerability to poverty. • In China and Thailand, as with Korea earlier, we observe sharp declines in co- residence patterns…
Co-Residence w/Adult Children Long Viewed as Social Safety Net, Declines with Development & Migration China Thailand Korea
Private Transfers and Poverty • In much of East Asia, private (financial and in-kind) transfers and co-residence with adult children reduce vulnerability to poverty. • In China and Thailand, as with Korea earlier, we observe sharp declines in co- residence patterns… • Declining co-residence may reflect preferences for privacy • Also occurs with adult child migration, which may lead to greater vulnerability. • Importance of Private Transfers: • An accounting exercise: Income poverty rates before and after public and private transfers • Do private transfers respond to low income? Would they be crowded out by support for the poor or a social pension?
In Some Countries, Private Transfers are Important for Staying Out of Poverty China 2011 Korea 2010 Mongolia 2010 Philippines 2009 Thailand 2011 Vietnam 2012 Source: Giles and Huang (2014). (Background paper for EAP Aging Report)
Are Private Transfers Responsive to Low Income? How Well do They Keep Elderly Out of Poverty? • Approach developed in Cai, Giles and Meng (JPubE 2006) and used in Giles, Wang and Zhao (2010) • Examine the extent to which private transfers respond to low income for households with elderly residents. • Household survey data • Partial linear model, allowing different motives for transfers at different points of the income distribution • Address both responsiveness and descriptive evidence on the possibility that a new public transfer might crowd out private transfers. • Descriptive evidence of differences for households with migrant versus non-migrant children.
Evidence on Transfer Responsiveness China with Migrants no Migrants Source: Giles and Huang (2014). Data from China Health and Retirement Longitudinal Study (2011)
Evidence on Transfer Responsiveness Indonesia with Migrants no Migrants Source: Giles and Huang (2014). Data from Indonesian Family Life Survey (2007)
Evidence on Transfer Responsiveness Thailand with Migrants no Migrants Source: Giles and Huang (2014). Data from Thai Social and Economic Survey (2011)
Transfer Derivatives Suggest Little Potential for Crowding Out a Public Transfer Estimated Transfer Derivatives for Elderly Households in Poverty ½ Poverty Poverty Line Line w/ Migrants China -0.07 -0.02 w/o Migrants -0.11 -0.09 w/ Migrants Indonesia -0.06 -0.03 w/o Migrants -0.04 -0.01 w/ Migrants Thailand -0.73 -0.34 w/o Migrants -0.29 -0.32 Conclusion: Introducing a pension for informal sector can improve well-being without overly distorting private support decisions. Source: Giles and Huang (2014). Data from CHARLS (2011), IFLS (2007) and Thai SES (2011)
Demographic Transition to Smaller Families Does Not Necessarily Lead to Less Financial Support • We observe poverty among the elderly, but… • Transfers Increasing in • Years of education of adult children • Number of adult children • Coefficients on both are substantially larger in magnitude for families with migrants, than families lacking migrants • Demographic transition to smaller family size suggests reduced transfers • “Higher Quality” children more than compensate for decline in family size.
“Retirement” and the Informal Sector: Would new Pensions Create Disincentives for Work? • Administrative versus Economic Retirement? • Exit from work is strongly associated with formal retirement and pension receipt for workers in formal sector. • Mandatory retirement of employees in civil service and formal sector work creates an additional bias against work (e.g. China, Vietnam, civil service elsewhere)
18 Discontinuities in Timing of Retirement at China’s Mandatory Retirement Ages Cumulative Retirement Age of Retirees 100 Urban Male Urban Female Rural Male 80 Rural Female 60 % 40 20 0 20 25 30 35 40 45 50 55 60 65 70 75 80 Retirement Age • Retirement jumps at mandatory retirement ages Source: Giles, Lei, Wang and Zhao
Retirement Hazards for China’s Urban and Rural Residents Retirement Hazard Rate of Retirees Urban 100 Male Female 80 60 % 40 20 0 45 50 55 60 65 70 75 80 Retirement Age Rural 100 Male Female 80 60 % 40 20 0 45 50 55 60 65 70 75 80 Retirement Age • Spikes of exit from work at mandatory retirement ages for urban workers: • Urban men at 60, women at 50 and 55 • Smooth retirement for rural people Source: Giles, Lei, Wang and Zhao with data from CHARLS (2011).
“Retirement” and the Informal Sector: Would new Pensions Create Disincentives for Work? • Administrative versus Economic Retirement? • Exit from work is strongly associated with formal retirement and pension receipt for workers in formal sector. • Mandatory retirement creates from civil service and formal sector work can create an additional bias against work (e.g. China) • Retirement Patterns in East Asia • Differences in patterns of labor supply over time mirror differences in formalization (of employment and of pension systems) • Labor supply of East Asia’s older workers tends to be higher than Europe, but this reflects higher incidence of informal employment and self-employment
Across East Asia, Significant Differences in Shares of Urban and Rural Workers Receiving a Pension China Indonesia Japan Korea Thailand Vietnam Sources: China Health and Retirement Longitudinal Study 2011 (CHARLS 2011), Indonesia Family Life Survey 2007 (IFLS 2007), Japanese Study of Aging and Retirement 2011 (JSTAR 2011), Korean Longitudinal Study of Aging 2010 (KLoSA 2010), Thailand Household Socio-Economic Survey 2011 (SES 2011), Vietnam Household Living Standards Survey 2012 (VHLSS 2012), and Philippines Family Income and Expenditure Survey 2009 (FIES 2009).
Across the Region Rural Residents Continue to Work until Older Ages Cambodia (2011) China (2011) Indonesia (2007) Korea (2010) Philippines (2009) Thailand (2011) Source: Giles, Huang and Yu (2014).
In Developing East Asia, Individuals w/ Higher Education Tend to “Retire” Earlier
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